The study was conducted by Waterplan members (including Jose Ignacio Galindo and Meagan Knowlton), with inputs from Chinchu Mohan, Oswaldo Nuno Gomez, and Marcos De Hertelendy.

Water scarcity is reshaping industries across the globe. With $225 billion worth of assets at risk (CDP) and global water demand set to outstrip supply by 40% by 2030 (McKinsey), businesses need to act and adapt decisively. For sustainability professionals, the stakes are high: managing water scarcity effectively not only safeguards operations and protects the environment, but also provides a competitive advantage in an increasingly resource-constrained world. 

So, how can you get ahead of this challenge? This article explores what every sustainability professional needs to know about water scarcity, including:

• What is water scarcity and how it can affect your business

• High-risk industries and hotspot locations

• Common challenges in measuring scarcity risk and how technology can help overcome them

What is Water Scarcity Risk for Sustainability Professionals?

Water scarcity is the insufficient availability of water resources to meet a specific location’s demands (UN). This occurs when water withdrawals exceed the available supply. Water scarcity risk refers to the likelihood that a business will experience water shortages in a specific area, which can significantly disrupt operations and the supply chain, potentially causing production delays, revenue loss, and even the need to relocate.

Based on Waterplan's proprietary risk framework and data analysis, 73.2% of over 3,000 locations across industries including beverages, food, mining, and textiles are exposed to medium to high water scarcity risk. Odds are, one or more of your company’s sites may be experiencing scarcity risk. Read on to learn how to ensure business continuity.

How Water Scarcity Risk Can Affect Your Business

Most companies rely on water to properly function, so water scarcity can heavily impact their operations, ultimately resulting in loss of revenue. To name a few:

• Production disruptions. Reduced availability of water for water-intensive industries such as food and beverage, manufacturing, data centers, energy and textiles may entail periodic production halts and/or reduced output. Chile, for instance, is the world’s largest copper producer and faces chronic water scarcity in the northern regions where most copper mines are located. Businesses have had to invest billions in order to secure a reliable water supply, in many cases resulting in a significant drop in production.

• Supply chain interference. Many businesses, like in the food, beverage and consumer goods industries, rely on agricultural products that require large amounts of water for cultivation. Water shortages can reduce crop yields, leading to supply chain instability and increased prices. According to a 2021 Barclays report, the consumer staples sector faces a potential $200 billion impact from water scarcity due to the sector’s heavy reliance on commodities which are highly vulnerable to water shortages.

• Compliance and regulatory costs. Strict water regulations are in place in areas affected by water scarcity. Failing to adhere to water usage limits can result in fines, penalties and even shutdowns. In 2023, California and Catalonia updated their water regulations in response to ongoing drought conditions. Increasingly, more and more regions will begin imposing measures to accommodate water shortages.

• Reputational loss. 81% of consumers say it’s important for companies to improve the environment (McKinsey), so when businesses fail to address water scarcity, it can lead to a loss of customer loyalty, reduced sales, and negative media coverage.

• Increased energy costs. Hydropower, which relies on water, can be affected by droughts, leading to power shortages and increased reliance on alternative, more expensive energy sources. For example, in August, Brazil’s worsening drought reduced hydropower generation, potentially forcing the country to rely on power plants burning coal, natural gas and diesel, which are more expensive and more polluting.

  
  

Water Scarcity Risk By Industry

Industries most vulnerable to water scarcity risk are those heavily reliant on water for their processes or products, for example:

• The beverage industry uses water as its primary ingredient. Over 60% of global beverage companies’ manufacturing facilities operate in areas with medium or high water risk (BIER). Beverage production is also extremely water-intensive: it takes 70 liters of water to produce 0.5 liters of soda.

• Agriculture is one of the largest users of freshwater globally, accounting for approximately 70% of global freshwater withdrawals (UNESCO).

• Consumer packaged goods (CPG) can suffer supply chain disruptions from their reliance on agricultural raw materials and manufacturing processes. Water is crucial to production, sanitation and processing operations. The CPG industry stands to lose a potential $200 billion from water scarcity.

• Data centers rely heavily on water for cooling: a typical cooling system uses up to 25.5 million liters of water per megawatt per year of electricity (Nature). Many data centers are also located in regions prone to water scarcity, with nearly half of servers being fully or partially powered by power plants located within water-stressed regions.

• Mining operations require significant amounts of water for mineral processing, dust suppression and cooling equipment. A typical copper mine uses about 70 cubic meters of fresh water to produce one metric ton of copper. 

• The textile and fashion industry is extremely water-intensive: a single T-shirt production requires about 2,700 liters of water, equivalent to what a person drinks in over 2 years. As such, water shortages in textile hubs can lead to factory shutdowns and production delays.

High Scarcity Risk Watersheds

Currently, 3.6 billion people face inadequate access to water at least a month per year and this is expected to increase to more than 5 billion by 2050, according to UN Water (WMO). Furthermore, based on Waterplan's global water risk assessments done for more than 53,000 Level-7 HydroBASINS worldwide, 71% are identified as experiencing medium to high water scarcity risks. However, the challenges vary significantly by region due to differences in physical conditions, water users, the priority given to water by governments and the adaptive capacity of communities. As a sustainability professional, understanding these nuances is crucial for addressing scarcity risk effectively at the local level. 

Below are two examples of regions currently experiencing significant water scarcity risks. As a sustainability professional, if your business has a site or supplier in these areas, this information is crucial, as they may face elevated scarcity challenges. However, to determine if these locations should be prioritized for risk mitigation, it’s essential to complement this with site-specific data—such as water accounting data, existing water management plans, and records of previous water-related issues. This comprehensive view will help assess each site’s readiness and capacity to manage these risks effectively.

Punjab, India

Since NASA’s GRACE mission first highlighted groundwater overuse in Punjab in 2009, the region has seen unsustainable water management. Over the last 70 years, the region, located in the Indus River basin, has shifted toward water-intensive rice cultivation to support the country’s rapidly increasing population. For reference, in 1939, rice cultivation accounted for just 9% of irrigated land, but by 2015-16, it had surged to 72%. As the image below shows, this shift has stressed groundwater resources to alarming levels, with 2022 data showing that groundwater extraction in Punjab reached 164% of what could be sustainably used, with 76% of the state’s area facing over-exploitation.

Waterplan’s risk framework revealed that in the last 5 years (2020-2024), the groundwater in and around the northern part of India, is getting depleted at a rate of 0.31 cm/month, underscoring the ongoing and accelerating depletion. 

Additionally, the frequency of droughts has increased dramatically in Northwestern India, with more droughts recorded between 1951 and 2013 than 1901 to 1950. These droughts are intensified by low rainfall, insufficient snowpack, and land degradation, all of which add stress to the water system already burdened by rising demands from agriculture, industry, and a growing population.

For businesses with sites in Punjab, understanding this data is essential for developing a resilient water strategy. While global data can indicate broad trends, it’s the localized insights that allow businesses to assess their unique risks accurately. With detailed knowledge of Punjab’s over-extraction levels, reliance on irrigation, and drought frequency, businesses can identify the specific actions needed to mitigate water scarcity risks. This can include implementing water conservation measures, investing in rainwater harvesting, and supporting local forestation efforts to restore the aquifer and promote long-term sustainability.

San Joaquin Valley, California, United States

The region of San Joaquin Valley has been heavily reliant on groundwater for agricultural irrigation, leading to severe groundwater depletion. The area has a greater farmland than can be supplied by local water supplies for irrigation: In most years since the mid-1980s, groundwater has been used faster than it is being replenished. Over the past three decades, groundwater overdraft has averaged nearly 13% of net water use. 

The graph below shows the change in groundwater storage in the San Joaquin Valley over time. It shows a clear increasing trend in groundwater storage depletion, with a noticeable acceleration in recent years.

On top of this, the valley’s surface water supplies have been strained due to droughts and climate change impacts on the Sierra Nevada snowpack, a crucial water source for the region. As the two images below show, over the past two decades, the precipitation and resulting runoff in the San Joaquin Valley, taken into consideration by a specific water index, have exhibited yearly fluctuations, while the annual mean streamflow of the San Joaquin River shows a decreasing trend of cubic feet per second.

For a business with a site or supplier in this region, a comprehensive and resilient water strategy can include water-efficient technologies in infrastructure to minimize use of water, active groundwater management to stay informed about regulations and implement groundwater recharge projects on-site, and a drought contingency plan that outlines water reduction measures during periods of scarcity.